Comments

Alan

This was in the Australian Financial Review:-

US-based hedge fund Mt Kellett Capital Management is understood to be considering converting its debt into Lynas equity at about 10¢ per share, which would deliver it a substantial stake in the $190 million miner.

Mt Kellett has been involved in Lynas since January 2012, when it gave Lynas $US225 million to fund the first phase of its Malaysian plant.

I’m surprised that the latest Lynas news hasn’t generated a lot more interest here. I guess its complexities take some time to absorb.
It’s definitely a 2-edged sword with a massive reduction in the Mt Kellett conversion price (over 50c to 10c) balanced by major reductions in the interest and repayment obligations. ($200m debt cancelled on conversion and $70m interest repayment reduction.) The shareholder dilution is close to 50% but it leaves a 4 year runway for the RE market to recover.
As a Lynas shareholder I’m on balance against the deal but open to be convinced it’s necessary to remain solvent.

Thanks JJ. As a long-term Lynas shareholder, it’s apparent from our hard-won experience with the Lynas Advanced Materials Processing Plant in Malaysia – by far the largest and only completely environmentally-proven RE processing family in the world – that there are very high barriers to entry due to the complexities in actually extracting a high purity usable material. We thought Lynas was brilliantly positioned to take on a world where there is clearly increasing demand for rare earth elements in so many high technology areas, but especially for the burgeoning world market for highly efficient electric motors and generators in vehicles, aircraft and wind power generators.

The Molycorp failure that left Australia’s Lynas as the only RE miner and processor outside China proved to the world how difficult this industrial challenge is. Then there is all that analysis and evidence at hearings in Washington about the vital dependence of all Western military technology on a reliable source of strategic rare earths!

So I’m now dumbstruck as to why, with increasing world demand, continual avowals from China’s strong central planning dictatorship of bringing China’s RE industry under improved control and curtailing export smuggling, has not seen a rise in world prices! Because it’s now clear that ALL RE processors are currently in difficulty to various degrees. If I was a conspiracy theorist it might seem that the world RE market might be under a degree of manipulation – but the WTO has demonstrated a degree of interest in this issue.

It seems clear from the last Lynas annual report that some major Western customers are specifying the use of its products, and the Japanese Government years ago took action to fund a doubling of the Lynas LAMP production capacity to 22,000 tonnes annually – now proven. So I find it difficult to believe that Japan, the US and Europe would countenance a reversion to almost total reliance on China as the source for their needs.

Trouble is, all those consumers who showed themselves keen to pay higher prices for environmentally sustainable and reliable supply have failed to put their money where their mouth is. Lynas does not achieve Fob prices for product. At the end of the day the Lamp will keep supplying Japan and the Bondholders will not be diluted. As usual the retail shareholders take a bath.